Non-competition restrictions in the Netherlands protect employers from
losing clients and information to former employees. Here, Martin Beijneveld,
partner at Dutch law firm Van Harmelen & Beijneveld, explains how to make
sure firms stay within the rules
Under Dutch employment law, an employer has several ways to restrict an
employee during and after termination of the employment agreement.
Parties can agree upon a confidentiality provision, a prohibition on outside
interests during the employment, and a post-termination non-competition clause.
This is specifically dealt with in The Netherlands’ Civil Code.
Non-competition clause
A non-competition clause is a stipulation between the employer and employee
where the employee is restricted in his ability to accept other employment
after his contract of employment has come to an end. Non-competition
restrictions aim to protect the employer from any infringement by the former
employee of the empl-oyer’s economic interests, such as know-how.
A non-competition clause will be deemed void if there is no written
agreement. It can be agreed upon at any time, even at the end of the employment
agreement. If an employment agreement for a fixed period of time is extended or
if there is a business transfer, a new non-competition clause does not have to
agreed.
Types of non-competition restrictions
Various types of non-competition restrictions may be included in an
employment agreement. They respectively prohibit the employee from competing,
contacting or having business dealings with customers and interfering with
supplies of services to the employer.
Non-competition restrictions must be no wider than is necessary to protect
the employer in terms of duration, territory and sphere of activity. The
employer must consider the employee’s position and the protections it requires
carefully. It should think about the geographical restriction in which it would
require protection. The narrower this is, the more likely it is that the clause
would be upheld.
The duration of restriction that is regarded as reasonable will depend upon
factors such as the employer’s marketplace and the extent of the employee’s
influence. In general, a limit of one year is usually regarded as acceptable.
To make these clauses reasonable and enforceable, they must be tailored to
the circumstances. In general, the paramount source of obligations between
parties to a contract is the contract itself.
"The contract itself" means not only the express terms of that
contract, but also terms implied into it. If the agreement of the parties is
not complete, the contents of the contract must be supplemented by the rules of
law, usage and reasonabless and fairness.
Under The Netherlands’ Civil Code the development of rules and principles
for the interpretation of contracts is left completely to the courts.
How the courts approach restrictive covenants
Case law shows that if a non-competition clause is drawn up too vaguely, the
courts interpret the clause in favour of the employee. The courts have the
power to limit the scope of a non-competition clause or to set it aside
altogether regardless of whether it is legally valid. This power may be
exercised if the employer has no business interest in enforcing the non-competition
clause or if the employer’s interest in enforcing it carries less weight than
the employee’s in having it limited in scope or set aside.
The courts will also include in their consideration the investments made by
the employer in the training and professional competence of the employee, the
duration of the employment, the employee’s salary, labour market opportunities
of the employee and the circumstances under which the employment agreement has
been terminated.
In weighing up the interests, it will be in the employer’s favour if it has
offered a payment during the length of the non-competition clause. The courts
have the power to order the employer to pay the employee compensation for the
duration of the period in which he wishes to enforce the non-competition
clause.
The employer cannot derive any rights from the non-competition clause if he
has terminated the employee’s employment in an irregular manner – that is
without having given notice or without due observance of the provisions
applicable to termination. The concept of a contractual payment in lieu of
notice, which in the UK would permit an immediate and lawful termination, is
unknown under The Netherlands’ Civil Code. A payment in lieu of notice clause
is null and void.
Finally, if the employment agreement undergoes considerable changes, the
non-competition clause will not stand. The employer and employee will have to
agree a new non-competition clause.
Remedies if the ex-employee is in breach of the non-competition
restriction
What remedies are available if the ex-employee is in breach the
non-competition provisions? In all matters in which an immediate injunction,
measure or decision is required, the parties to the non-competition provision
may apply to the court. The decision of the court is provisional in the sense
that it does not prejudice the rights of parties in main proceedings that are
pending or that are initiated after the court’s judgement. In the main
proceedings, the employer can claim damages.
In order to avoid any dispute on the amount of damages, it is advisable for
the employer to include a penalty provision in the employment agreement,
specifying the amount of money payable by the employee in the event of a breach
of the provisions after termination. This constitutes both an incentive to
perform and a means of determining in advance the amount of compensation
payable.
If the employer chooses to invoke the penalty clause, it cannot claim the
actual amount of losses arising from the breach, but instead the amount
specifically agreed in advance. Again, to ensure that the penalty provision is
enforceable, it must be tailored to the particular circumstances as far as
possible. Courts can modify a penalty provision at the request of the employee
if it is obviously required to achieve fairness.
Conclusion
The non-competition provision is an effective instrument for the employer to
protect its interests and is even more effective when linked to a penalty
provision, which is a strong incentive to perform the restrictive covenant.
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Employers with employees in The Netherlands should not underestimate the
value of a well-drafted, non-competition covenant since the enforceability of
this is likely to be upheld in court and thus provide important protection for
the interests of the employer.
Edited by Clare Murray, employment law partner at Fox Williams and editor
of Fox Williams’ online employment law information service www.hrlaw.co.uk
